New Residential Announces First Quarter 2019 Results

NEW YORK–(BUSINESS WIRE)–New Residential Investment Corp. (NYSE: NRZ; “New Residential” or the
“Company”) today reported the following information for the first
quarter ended March 31, 2019:

FIRST QUARTER FINANCIAL HIGHLIGHTS:

GAAP Net Income of $145.6 million, or $0.37 per diluted share(1)

Core Earnings of $204.3 million, or $0.53 per diluted share(1)(2)

Common Dividend of $207.7 million, or $0.50 per share(1)

Book Value per share of $16.42(1)

1Q 2019

4Q 2018

Summary Operating Results:

GAAP Net Income per Diluted Share(1)

$0.37

$0.00

GAAP Net Income

$145.6 million

$0.3 million

Non-GAAP Results:

Core Earnings per Diluted Share(1)(2)

$0.53

$0.58

Core Earnings(2)

$204.3 million

$208.3 million

NRZ Common Dividend:

Common Dividend per Share(1)

$0.50

$0.50

Common Dividend

$207.7 million

$184.6 million

“During the first quarter of 2019, New Residential again demonstrated
the strength of our portfolio and our ability to execute across
different market environments as we grew our book value and generated
stable core earnings,” said Michael Nierenberg, Chairman, Chief
Executive Officer and President. “Our results to start the year were
bolstered by the performance of our bond and loan portfolios as well as
by the realized benefits from Shellpoint’s origination capabilities.
Overall, we think that the current market backdrop is supportive of our
strategy and that the diversified and complementary nature of our
portfolio is well-positioned in this environment. As I have mentioned
before, we continue to see incremental opportunities to capture the full
value of the mortgage asset and we intend to be opportunistic in
pursuing growth opportunities that are additive to our long-term
strategy and that benefit our shareholders.”

(1)

Per share calculations of GAAP Net Income and Core Earnings are
based on 388,601,075 weighted average diluted shares during the
quarter ended March 31, 2019 and 358,509,094 weighted average
diluted shares during the quarter ended December 31, 2018. Per share
calculations of Common Dividend are based on 415,429,677 basic
shares outstanding as of March 31, 2019 and 369,104,429 basic shares
outstanding as of December 31, 2018. Per share calculations for Book
Value are based on 415,429,677 basic shares outstanding as of March
31, 2019.

(2)

Core Earnings is a non-GAAP measure. For a reconciliation of Core
Earnings to GAAP Net Income, as well as an explanation of this
measure, please refer to Non-GAAP Measures and Reconciliation to
GAAP Net Income below.

New Residential controls call rights to approximately $116 billion
of mortgage collateral, representing approximately 35% of the
Non-Agency market.(3)(4) Approximately $45 billion of
our call rights population is currently callable. (3)

During the first quarter, we executed clean-up calls on 19
seasoned, Non-Agency residential mortgage-backed securities
(“RMBS”) deals with an aggregate UPB of approximately $910 million.

Completed two non-qualifying mortgage (Non-QM) loan
securitizations for a combined aggregate UPB of approximately $600
million.

Servicer Advances

We continued to work with our sub-servicers to lower advance
balances during the quarter – advance balances (with servicers
Nationstar, Ocwen and SLS) as of March 31, 2019 were $3.3 billion,
representing an 8% decline quarter-over-quarter.

Additional Highlights

Raised $752 million in gross proceeds of common equity during the
quarter.

(3)

The UPB of the loans relating to our call rights may be materially
lower than the estimates in this Press Release, and there can be no
assurance that we will be able to execute on this pipeline of
callable deals in the near term, or at all, or that callable deals
will be economically favorable. The economic returns from this
strategy could be adversely affected by a rise in interest rates and
are contingent on the level of delinquencies and outstanding
advances in each transaction, fair market value of the related
collateral and other economic factors and market conditions. We may
become subject to claims and legal proceedings, including purported
class-actions, in the ordinary course of our business, challenging
our right to exercise these call rights. Call rights are usually
exercisable when current loan balances in a related portfolio are
equal to, or lower than, 10% of their original balance.

(4)

All data as of March 31, 2019, unless otherwise stated.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for
investors, please refer to the latest presentation posted on the
Investor Relations section of the Company’s website, www.newresi.com.
For consolidated investment portfolio information, please refer to the
Company’s most recent Quarterly Report on Form 10-Q or Annual Report on
Form 10-K, which are available on the Company’s website, www.newresi.com.

EARNINGS CONFERENCE CALL

New Residential’s management will host a conference call on Wednesday,
May 1, 2019 at 8:00 A.M. Eastern Time. A copy of the earnings release
will be posted to the Investor Relations section of New Residential’s
website, www.newresi.com.

All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing 1-866-393-1506 (from within
the U.S.) or 1-702-374-0622 (from outside of the U.S.) ten minutes prior
to the scheduled start of the call; please reference “New Residential
First Quarter 2019 Earnings Call.”

A simultaneous webcast of the conference call will be available to the
public on a listen-only basis at www.newresi.com.
Please allow extra time prior to the call to visit the website and
download any necessary software required to listen to the internet
broadcast.

A telephonic replay of the conference call will also be available two
hours following the call’s completion through 11:59 P.M. Eastern Time on
Wednesday, May 15, 2019 by dialing 1-855-859-2056 (from within the U.S.)
or 1-404-537-3406 (from outside of the U.S.); please reference access
code “1980259.”

Consolidated Statements of Income($ in thousands,
except share and per share data)

issued and outstanding at March 31, 2019 and December 31, 2018,
respectively

4,155

3,692

Additional paid-in capital

5,497,838

4,746,242

Retained earnings

768,592

830,713

Accumulated other comprehensive income (loss)

551,696

417,023

Total New Residential stockholders’ equity

6,822,281

5,997,670

Noncontrolling interests in equity of consolidated subsidiaries

89,928

90,625

Total Equity

6,912,209

6,088,295

$

33,409,568

$

31,691,013

NON-GAAP MEASURES AND RECONCILIATION TO GAAP NET INCOME

New Residential has four primary variables that impact its operating
performance: (i) the current yield earned on the Company’s investments,
(ii) the interest expense under the debt incurred to finance the
Company’s investments, (iii) the Company’s operating expenses and taxes
and (iv) the Company’s realized and unrealized gains or losses,
including any impairment, on the Company’s investments. “Core earnings”
is a non-GAAP measure of the Company’s operating performance, excluding
the fourth variable above and adjusts the earnings from the consumer
loan investment to a level yield basis. Core earnings is used by
management to evaluate the Company’s performance without taking into
account: (i) realized and unrealized gains and losses, which although
they represent a part of the Company’s recurring operations, are subject
to significant variability and are generally limited to a potential
indicator of future economic performance; (ii) incentive compensation
paid to the Company’s manager; (iii) non-capitalized transaction-related
expenses; and (iv) deferred taxes, which are not representative of
current operations.

The Company’s definition of core earnings includes accretion on
held-for-sale loans as if they continued to be held-for-investment.
Although the Company intends to sell such loans, there is no guarantee
that such loans will be sold or that they will be sold within any
expected timeframe. During the period prior to sale, the Company
continues to receive cash flows from such loans and believes that it is
appropriate to record a yield thereon. In addition, the Company’s
definition of core earnings excludes all deferred taxes, rather than
just deferred taxes related to unrealized gains or losses, because the
Company believes deferred taxes are not representative of current
operations. The Company’s definition of core earnings also limits
accreted interest income on RMBS where the Company receives par upon the
exercise of associated call rights based on the estimated value of the
underlying collateral, net of related costs including advances. The
Company created this limit in order to be able to accrete to the lower
of par or the net value of the underlying collateral, in instances where
the net value of the underlying collateral is lower than par. The
Company believes this amount represents the amount of accretion the
Company would have expected to earn on such bonds had the call rights
not been exercised.

The Company’s investments in consumer loans are accounted for under
Accounting Standards Codification (“ASC”) No. 310-20 and ASC No. 310-30,
including certain non-performing consumer loans with revolving
privileges that are explicitly excluded from being accounted for under
ASC No. 310-30. Under ASC No. 310-20, the recognition of expected losses
on these non-performing consumer loans is delayed in comparison to the
level yield methodology under ASC No. 310-30, which recognizes income
based on an expected cash flow model reflecting an investment’s lifetime
expected losses. The purpose of the core earnings adjustment to adjust
consumer loans to a level yield is to present income recognition across
the consumer loan portfolio in the manner in which it is economically
earned, avoid potential delays in loss recognition, and align it with
the Company’s overall portfolio of mortgage-related assets which
generally record income on a level yield basis. With respect to consumer
loans classified as held-for-sale, the level yield is computed through
the expected sale date. With respect to the gains recorded under GAAP in
2014 and 2016 as a result of a refinancing of the debt related to the
Company’s investments in consumer loans, and the consolidation of
entities that own the Company’s investments in consumer loans,
respectively, the Company continues to record a level yield on those
assets based on their original purchase price.

While incentive compensation paid to the Company’s manager may be a
material operating expense, the Company excludes it from core earnings
because (i) from time to time, a component of the computation of this
expense will relate to items (such as gains or losses) that are excluded
from core earnings, and (ii) it is impractical to determine the portion
of the expense related to core earnings and non-core earnings, and the
type of earnings (loss) that created an excess (deficit) above or below,
as applicable, the incentive compensation threshold. To illustrate why
it is impractical to determine the portion of incentive compensation
expense that should be allocated to core earnings, the Company notes
that, as an example, in a given period, it may have core earnings in
excess of the incentive compensation threshold but incur losses (which
are excluded from core earnings) that reduce total earnings below the
incentive compensation threshold. In such case, the Company would either
need to (a) allocate zero incentive compensation expense to core
earnings, even though core earnings exceeded the incentive compensation
threshold, or (b) assign a “pro forma” amount of incentive compensation
expense to core earnings, even though no incentive compensation was
actually incurred. The Company believes that neither of these allocation
methodologies achieves a logical result. Accordingly, the exclusion of
incentive compensation facilitates comparability between periods and
avoids the distortion to the Company’s non-GAAP operating measure that
would result from the inclusion of incentive compensation that relates
to non-core earnings.

With regard to non-capitalized transaction-related expenses, management
does not view these costs as part of the Company’s core operations, as
they are considered by management to be similar to realized losses
incurred at acquisition. Non-capitalized transaction-related expenses
are generally legal and valuation service costs, as well as other
professional service fees, incurred when the Company acquires certain
investments, as well as costs associated with the acquisition and
integration of acquired businesses.

As of the third quarter of 2018, as a result of the Shellpoint
Acquisition, the Company, through its wholly owned subsidiary, NewRez
(formerly New Penn Financial), originated conventional,
government-insured and nonconforming residential mortgage loans for sale
and securitization. In connection with the transfer of loans to the GSEs
or mortgage investors, the Company reports realized gains or losses on
the sale of originated residential mortgage loans and retention of
mortgage servicing rights, which the Company believes is an indicator of
performance for the Servicing and Origination segment and therefore
included in core earnings. Realized gains or losses on the sale of
originated residential mortgage loans had no impact on core earnings in
any prior period, but may impact core earnings in future periods.

Management believes that the adjustments to compute “core earnings”
specified above allow investors and analysts to readily identify and
track the operating performance of the assets that form the core of the
Company’s activity, assist in comparing the core operating results
between periods, and enable investors to evaluate the Company’s current
core performance using the same measure that management uses to operate
the business. Management also utilizes core earnings as a measure in its
decision-making process relating to improvements to the underlying
fundamental operations of the Company’s investments, as well as the
allocation of resources between those investments, and management also
relies on core earnings as an indicator of the results of such
decisions. Core earnings excludes certain recurring items, such as gains
and losses (including impairment as well as derivative activities) and
non-capitalized transaction-related expenses, because they are not
considered by management to be part of the Company’s core operations for
the reasons described herein. As such, core earnings is not intended to
reflect all of the Company’s activity and should be considered as only
one of the factors used by management in assessing the Company’s
performance, along with GAAP net income which is inclusive of all of the
Company’s activities.

The primary differences between core earnings and the measure the
Company uses to calculate incentive compensation relate to (i) realized
gains and losses (including impairments), (ii) non-capitalized
transaction-related expenses and (iii) deferred taxes (other than those
related to unrealized gains and losses). Each are excluded from core
earnings and included in the Company’s incentive compensation measure
(either immediately or through amortization). In addition, the Company’s
incentive compensation measure does not include accretion on
held-for-sale loans and the timing of recognition of income from
consumer loans is different. Unlike core earnings, the Company’s
incentive compensation measure is intended to reflect all realized
results of operations. The Gain on Remeasurement of Consumer Loans
Investment was treated as an unrealized gain for the purposes of
calculating incentive compensation and was therefore excluded from such
calculation.

Core earnings does not represent and should not be considered as a
substitute for, or superior to, net income or as a substitute for, or
superior to, cash flows from operating activities, each as determined in
accordance with U.S. GAAP, and the Company’s calculation of this measure
may not be comparable to similarly entitled measures reported by other
companies. Set forth below is a reconciliation of core earnings to the
most directly comparable GAAP financial measure (in thousands):

Certain information in this press release constitutes as
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, including, but not limited to
our strategy, growth opportunities and call rights population. These
statements are not historical facts. They represent management’s current
expectations regarding future events and are subject to a number of
trends and uncertainties, many of which are beyond our control, which
could cause actual results to differ materially from those described in
the forward-looking statements. Accordingly, you should not place undue
reliance on any forward-looking statements contained herein.